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Dueling PMI Surveys: ISM vs. Markit

Two major purchasing managers’ surveys on the outlook for U.S manufacturing came to remarkably different conclusions about the state of the industry while finding almost identical levels of activity in June.

The Institute for Supply Management a U.S organization, reported that its PMI index rose to 53.5 from 52.8 in May. Markit Economics, based in London, said that its PMI survey fell to 53.6 in June from 54.0 in May. Both results were better than expected. Economists had forecast a 52.0 reading for the ISM index and 53.4 for the Markit poll.

Though the two surveys were essentially seeing the same amount of optimism among purchasing managers, the polls have gone in opposite directions in the past fourth months. Each organization did find that hiring remained strong in June.

The Institute survey has climbed for three straight months from a low of 51.5 in March and April that had been the weakest reading in two years. Markit's information notes the opposite, its PMI numbers have declined for three months in a row from 55.7 in March. The divergence is a recent phenomenon.

Both surveys had reported highs last August, ISM at 58.1 and Markit at 57.9. The subsequent decline was charted on each indicator though the timing was delayed in the older ISM poll. By January they were again within points of each other, ISM at 53.5 and Markit at 53.9.

Then in February the two data sets parted ways. ISM continued down to 52.9 and then to the above mentioned bottom at 51.5 in March and April. Markit turned higher to 55.1 in February and 55.7 in March and then lower to 54.1 in April, 54.0 in May.

Since Markit began reporting on the American economy in July 2012, its survey has been in overall directional agreement with the more establish poll from the Institute for Supply Management. The overall methodology of the two surveys is similar with 50 as the dividing lpoint between expansion and contraction. Viewing the accompanying chart the similarity of the overall attitudes among purchasing managers is evident.

This is the first instance where the descriptive relationship of the two surveys has broken down. While it is possible that normal polling variation could have produced this unusual four month break, it seems unlikely because of the sustained difference.

From here both surveys cannot be right about the forward movement of the manufacturing sector. Either the two sets will resume their relative directional congruence in July or we will have further evidence of the unsettled nature of the current economy.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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